Debenhams Digs In After Mike Ashley Ratchets Up Coup Bid

(Bloomberg) -- Debenhams Plc is vowing to fight off billionaire Mike Ashley’s bid to oust the troubled U.K. retailer’s board and take over its management.

After Ashley’s Sports Direct International Plc stepped up its campaign late Thursday, the department-store chain said talks with creditors are advancing as it races to secure new funding before the tycoon can cement his control over another anchor of the U.K.’s shopping districts.

Debenhams was up 23 percent early Friday in London, but it’s lost 85 percent over the past 12 months, cutting the market value to about 47 million pounds ($62 million).

Ashley, the largest shareholder with a roughly 30 percent stake, called for a general meeting of investors to consider his bid to remove all but one of the retailer’s directors and install himself in a management role. The company has 21 days to call a meeting and 28 thereafter to hold it, giving it just under two months to reach a refinancing deal. Lenders are prepared to grant more credit in an effort to ward off Ashley, a person familiar with the situation said last month.

The Debenhams board “is disappointed that Sports Direct has taken this action,” it said in a statement. “In the meantime, discussions to address our future funding requirements are well advanced.”

Ashley’s move came just two days after Debenhams issued its fourth profit warning in 14 months. The company said the cost of a rescue plan it stitched together earlier this year would weigh on earnings, even as sales showed some signs of stabilizing. It said it was considering several refinancing options, including a debt-for-equity swap and a shareholder rights issue, which would dilute the value of existing holdings, including Ashley’s.

Like other U.K. retailers, Debenhams is struggling with the rise of online shopping, in which Britain is a global leader, as well as consumer unease as Brexit approaches. Casualties have been mounting, with fashion chain L.K. Bennett, a favorite haunt of Kate Middleton, the Duchess of Cambridge, collapsing into insolvency on Thursday.

Chairman, CEO

Earlier this year, Ashley, the biggest Debenhams shareholder, drove its chairman and chief executive officer off the board in a prelude to Thursday’s move. If chosen as a director, Ashley would step down from his current role as chief executive officer of Sports Direct and be replaced there on an acting basis by Chief Financial Officer Chris Wootton.

Sports Direct shares fell as much as 2.5 percent early Friday.

“Ashley would carry out an executive role, and would focus on the Debenhams business, including building a strong board and management team,” Sports Direct said in a statement.

The move will fuel speculation that Ashley, who also owns the Newcastle United soccer team, intends to combine Debenhams with House of Fraser, another struggling department-store chain that he rescued last year. This year, he has already unsuccessfully bid for entertainment retailer HMV, bakery chain Patisserie Valerie and catalog retailer Findel.

If Ashley triumphs, only one current Debenhams board member would remain: CFO Rachel Osborne, who became a director in September 2018.

--With assistance from Anne Riley Moffat.

To contact the reporter on this story: Ellen Milligan in London at emilligan11@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, John J. Edwards III

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